C H E R R Y C H E N , M . D .
G U I D E T O
with THE REAL ESTATE PHYSIC IANTM
The
DefinitivePHYSICIAN’S
COMMERCIAL REAL
ESTATE SYNDICATIONS
www.therealestatephysician.com
Copyright ©2019 The Real Estate Physician
All rights reserved.
Thank you for purchasing an authorized edition of this book
and for complying with copyright law. No part of this book may
be reproduced, stored in a retrieval system, or transmitted by
any means, electronic, mechanical, photocopying, recording, or
otherwise, without written permission from the copyright holder.
Design and composition by Teresa Muniz
Cover design by Teresa Muniz
First Edition
The contents of this book do not constitute an investment recommendation.
As such, this book does not contain all information that a prospective
investor may desire in evaluating an investment strategy or individual
investment. Each investor must rely on his or her own examination of an
investment strategy or individual investment, including the merits and risks
involved in making an investment decision.
Prior to making an investment decision, a prospective investor should
consult his or her own counsel, accountants, and other advisors to evaluate
the merits of an investment strategy or individual investment. Additionally,
any discussion of the past performance of any investment strategy or
individual investment, should not be relied on as a guarantee of future
performance, and no warranty of future performance is intended or implied.
This book is dedicated to my fellow physician colleagues.
Thank you for your hard work and dedication to your
profession and to your patients.
Let this book be the next step you take in empower-
ing yourself as a physician investor so you can achieve
greater financial independence and have the freedom to
practice medicine on your own terms.
TABLE OF CONTENTS
INTRODUCTION 1
chapter one
INTRODUCTION: COMMERCIAL REAL ESTATE 3
What is commercial real estate? 3
Why invest in commercial real estate? 4
Real estate 101 4
Scaling up with commercial real estate 7
Top 3 Niches in Commercial Real Estate 9
Multifamily apartments 11
Self-Storage units 13
Manufactured home communities 17
chapter two
SYNDICATIONS: PASSIVE
INVESTING FOR BUSY PROFESSIONALS 19
What is a syndication? 19
Why invest with a syndication? 21
How to invest with syndications 23
FAQs 23
The syndication process 30
viii Physician’s Deinitive Guide to Commercial Real Estate Syndications
chapter three
GETTING STARTED: THE ANATOMY OF A DEAL 35
Commercial Real Estate Vocabulary 35
Common terminology 35
Sample deal 41
Vetting a sponsor 41
Vetting a market 46
Vetting a deal 47
chapter four
NEXT STEPS: CONNECT WITH US 49
Physician Investors Circle 49
CONCLUSION 53
ABOUT THE AUTHOR 55
INTRODUCTION
The Physician’s Definitive Guide to Commercial Real Estate Syndications is a resource guide created for the physician inves-
tor looking to learn more about commercial real estate syndications.
It was written with you in mind, the physician investor who wants
to put your hard-earned money to work with confidence.
As physicians, our greatest financial advantage is the high income
we earn. However, like any other profession, we are limited as far
as trading our time for money. As the healthcare climate continues
to change, it is wise to heed Warren Buffet’s adage, “Never depend
on a single income. Make investments to create a second source.”
Investing in commercial real estate through syndications is only
one of many options to create additional income streams through
your investments. It is the one we focus on because it allows you
to leverage your investment capital in multiple ways to work hard
for you independent of your time or efforts. Through the power
of leverage, you can now invest your capital to buy you more time.
I personally started down this path more than four years ago,
2 Physician’s Deinitive Guide to Commercial Real Estate Syndications
sifting through numerous resources and being overwhelmed with
all the information out there. This guide is a compilation of what
I’ve learned and is meant to serve as a foundation for you. It is just
as important to understand why syndications may be a good invest-
ment option for you as it is to know why it may NOT be a good
investment option for you based on your financial goals.
Over the years, I’ve collected mailbox money from these invest-
ments and have seen a trend amongst physicians looking to diversify
into real estate to earn passive income. In August 2018, The Real
Estate PhysicianTM was launched as a physician-forward resource
with the vision of empowering a community of physician investors
to achieve greater financial independence so we can have the free-
dom to practice medicine on our own terms.
This guide is for investors at all stages, whether you are look-
ing to learn more or expand your portfolio with commercial real
estate. We hope it can serve as a consolidated resource and save you
time by leveraging our knowledge and experience. It is the resource
guide I wished I had starting out!
As with any endeavor, knowledge is only the beginning, so feel
free to reach out and contact us to learn more. We have been guid-
ing physicians in the Physician Investors Circle by helping simplify
the process and ensuring that investors are knowledgeable and
informed about their investments.
C H A P T E R O N E
COMMERCIAL
REAL ESTATE
“Real estate is the best investment in the world because it is
the only thing they’re not making anymore.”
—Will Rogers
WHAT IS COMMERCIAL REAL ESTATE?
Commercial real estate refers to buildings or land which brings or
has the potential to generate a profit, either from capital gain or
rental income.
Generally, commercial real estate is divided into the follow-
ing categories: retail, office, healthcare, multifamily, self-storage
and mobile home park communities. Specifically, commercial real
estate refers to buildings that are 5+ units. This is an important
4 Physician’s Deinitive Guide to Commercial Real Estate Syndications
distinction as the financing and valuation of these properties differs
from residential real estate.
WHY INVEST IN COMMERCIAL REAL ESTATE?
Real estate 101
“Ninety percent or so of millionaires become so
through owning real estate.”
—Andrew Carnegie
It’s a known fact that real estate is an attractive vehicle to create
wealth, and often comprises a large percentage of a high net worth
individual’s investment portfolio. Why is this the case? The objec-
tive of this guide is not to convince you that one strategy is supe-
rior to another, but rather, to highlight the differences so you can
explore which option best suits you.
The fundamentals of real estate provide unparalleled returns on
a risk-adjusted basis, but for most of us, our options have typically
been limited to stocks and bonds. The chart below provides a nice
overview of the unique characteristics and differences between real
estate versus stocks, bonds, and cash.
5COMMERCIAL REAL ESTATE
EQUITY BUILDUP
$
$
REAL ESTATE
HIGH CASH RETURN
LEVERAGE
HARD ASSET
TAX ADVANTAGE
STOCKS BONDS CASH/SAVINGS
Source: RealCrowd
Following, we highlight the unique characteristics of investing
in real estate through a simple example, which illustrates the aspects
of real estate that make it an attractive investment vehicle. You can
see the concepts of income (cash flow), depreciation, appreciation,
equity, leverage, and tax benefits all within one investment!
6 Physician’s Deinitive Guide to Commercial Real Estate Syndications
W H Y R E A L E S T A T E ?A D VA N TA G E S O F R E A L E S TAT E I N V E S T I N G
L E T ’ S U S E A S I M P L E E X A M P L E
A D V A N T A G E S
Purchase
Sale Price: $100,000
Down Payment: - $25,000
Bank Loan: - $75,000
Mortgage and expenses: - $500
Rent: + $1,000
$500
Monthly
CASH FLOW$1,000 Rent - mortgage & expenses = $500 cash flow
After paying expenses to the property, the rest of that rent is yours to keep.
Cash flow = passive income = financial independence
LEVERAGEThe bank or lender typically finances 75% of the purchase price. Investors can
benefit from ownership while only paying a fraction of the purchase price. You
paid for 25% of the property but get to keep 100% of the cash flow. You are
leveraging debt.
EQUITYThe key here is that your equity is increased by the rental income generated by
the property. The mortgage is paid down by the tenants who pay rent, not out of
your pocket.
APPRECIATIONAppreciation is the increase in value of your asset over time. The value of your
home will generally go up over the years. Think of this as opposed to the value of
your car or computer, which usually decreases over time.
TAX BENEFITSThe IRS allows for tangible assets like real estate to be depreciated. This
translates to losses on your tax returns even though you are receiving rental
income throughout the year. Unlike earned income from your wages, rental
income from real estate investments may be tax-free.
w w w . t h e r e a l e s t a t e p h y s i c i a n . c o m
$
Credit: Alexandria Luu
7COMMERCIAL REAL ESTATE
Scaling up with commercial real estate
The simple example we used in the last section illustrates the unpar-
alleled benefits of real estate compared to other asset classes. These
benefits are magnified when the principal of leverage is applied to
multiple units in commercial real estate.
Differences to consider between single-family vs. multi-family
units:
SINGLE-FAMILY MULTI-FAMILYBENEFITS OF
LEVERAGE
ECONOMIES
OF SCALE
Single tenant
(100% or 0%
occupied)
Multiple tenants
(2 vacancies in
100-unit complex
would still be 98%
occupied)
More
predictability and
stability
MANAGEMENT
Self-manage or
management
company
3rd party
professional
management
Less effort, cost,
and time
APPRECIATION
Subjective based
on market and
neighborhood
Objective and
controlled
through forced
appreciation
More
predictability and
control
VALUATIONBased on market
comps
Based on NOI (net
operating income)
More
predictability and
control
LOANRecourse loan you
are liable for
Non-recourse
loan you are not
liable for
Less risk and
less liability
Source: The Real Estate PhysicianTM
As you can see, leverage through economies of scale in multifam-
ily provides many benefits which make it an attractive investment.
8 Physician’s Deinitive Guide to Commercial Real Estate Syndications
Regardless of your investment risk profile, having more predict-
ability and stability with less risk and liability make good sense.
If you understand the above fundamentals, then it should not be a
surprise that multifamily delinquencies remained relatively flat while
single family delinquencies increased during the 2008 crash. In 2009,
at the bottom of the financial crisis, delinquency rates on single fam-
ily homes were 4.5%, versus 0.5% on multi-family apartments.
Here’s a graph illustrating delinquency rates of single vs. multi-
family loans from 2005-2015:
SERIOUS DELINQUENCY RATESMultifamily vs. Single-Family Loans, 2005-2015
Freddie Mac Multifamily Loans
Sources: Fannie Mae, Freddie Mac and Urban Institute
Note: Multifamily serious delinquency rate is the unpaid balance of loans 60 days or
more past due, divided by the total unpaid balance
Freddie Mac Single Family Loans
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
It is comforting to know that your money is not only invested
in noncorrelated assets (not correlated with volatility of stock mar-
ket), but that it has also been shown to be recession-resilient.
9COMMERCIAL REAL ESTATE
Now that you understand the underlying fundamentals and the
leverage provided by commercial real estate, the next chapter will
go over, in detail, the top three niches for investors in commercial
real estate.
TOP 3 NICHES IN COMMERCIAL REAL ESTATE:
When it comes to selecting investments for your portfolio, char-
acteristics like predictability, stability and recession-resilience are
important, and that’s what makes multifamily apartments, self-
storage and manufactured home communities attractive. In addi-
tion, these three niches provide attractive returns as well as the tax
benefits associated with owning real estate.
In this section, we will review the unique attributes of these pre-
ferred asset classes so you can make informed decisions for your
own portfolio.
As investors, we are focused on commercial asset classes like
multifamily apartments, self-storage units and manufactured home
communities as these are evergreen niches driven by population
demand. These asset classes have proven to be stable and predict-
able, providing investors with excellent risk-adjusted returns and
outperforming stocks by 6-10% over the last 25 years.
Annual returns from 1993 to 2017:
Self Storage: 17.43%
Apartments: 13.32%
Manufactured Homes: 13.27%
S&P 500: 7.54%
Source: https://www.reit.com/data-research/reit-indexes/annual-index-values-returns
10 Physician’s defi nitive Guide to Commercial real estate Syndications
Source: https://arbor.com/blog/demographics-driving-multifamily-demand/
11COMMERCIAL REAL ESTATE
MULTI-FAMILY APARTMENTS
There is strong demand for apartments driven by both economic
and demographic shifts. Home ownership remains out of reach
for many Americans and everybody needs a roof over their heads,
regardless of the stage of the market cycle.
Meanwhile, demand continues to outpace supply, with an
expected 4.5 million apartment units needed through 2030, accord-
ing to the National Apartment Association and National Multifamily
Housing Council.
4.6 Million
DEMAND IS RISING
New apartment homes needed in the U.S. by the year 2030
Population growth, immigration and changing lifestyle preferences
mean more people will be living in apartments in the future. The
challenge, however, is building the number of apartment homes
to meet that growing demand.
‘16 ’17 ‘18 ’19 ‘20 ’21 ‘22 ’23 ‘24 ’25 ‘26 ’27 ‘28 ’29 ‘30
5m
4m
3m
2m
1m
0
Source: weareapartments.org
12 Physician’s Deinitive Guide to Commercial Real Estate Syndications
Multifamily apartments are typically classified into three catego-
ries: turnkey, value-add, and distressed/deep value-add. As poten-
tial investors, you need to be aware of the type of property you are
evaluating as the risk and returns vary depending on the category.
PROPERTY
TYPE
WORK
NEEDED
POST-
ACQUISITION
RETURNS TO
INVESTORSRISK
TURNKEY
Class A
properties
that are
highly
stabilized
Minimal to
none
Low ongoing
returns with
lower upside
potential at
sale
Low
VALUE-ADD*
Class B or
C stabilized
properties
with a
“value-add”
potential
Moderate
Higher
ongoing
returns with
high upside
potential at
sale
Moderate
DISTRESSED
Class C or D
properties
that are
non-stabilized
A Lot
Low (or no)
ongoing
returns with
higher upside
potential at
sale
High
*Value-add means opportunities where owners can increase the revenue or decrease the
expenses of a property. For example, revenue can be increased by upgrading the units
and increasing the rents. Expenses can be decreased through more efficient property
management. Source: The Real Estate PhysicianTM
The Real Estate PhysicianTM focuses on providing opportunities
in value-add apartments as this category provides a lower level of
risk to investors while providing the highest ongoing returns and
high upside potential at sale.
This model focuses on capital preservation for investors, and then
13COMMERCIAL REAL ESTATE
capital appreciation through the value-add component. We highlight
the basic differences above so you can be aware of the opportunities
out there and remember to consider the apartment category that
most aligns with your financial goals.
Here is a sample example of a “typical” multifamily value-add
deal which provides investors with capital preservation as well as
capital appreciation through the investment. We will go over the
terminology in further detail in the latter sections of this guide.
SAMPLE DEAL
RUSTIC OAK APARTMENTS
110 UNITS | DALLAS, TX
Introducing Rustic Oak Apartments located in Dallas, TX. This 110 unit property is sponsored by Coffee&Do-nuts with a projected annualized cash-on-cash return of 9.14% with a 1.97X equity multiplier over a 5 year holding period. The minimum investment amount for this deal is $100,000.
This is based on a deal that has already closed and only intended to be used as an example.
LET ’S SAY YOU RECEIVE
THIS DEAL IN YOUR INBOX
Cash on Cash Return ($)
Cash on Cash Return (%)
$5,992
6.0%
$8,758
8.7%
$9,574
9.6%
$10,310
10.3%
$11,070
11.1%
-
0.0%
-
0.0%
-
0.0%
-
0.0%
$51,336
51.3%
$5,992
6.0%
$14,710
14.7%
$24,283
24.3%
$34,593
34.6%
$97,000
97.0%
Equity upon Exit ($)
Equity upon Exit (%)
Total Cumulative Return ($)
Total Cumulative Return (%)
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
TOTAL5-YEAR
RETURN YOU
DECIDE
D TO
INVEST
THIS MU
CH Projected Investor Returns
$97,000$100,000
$197,000
INITIAL INVESTMENT + TOTAL RETURNS
HOW MUCH YOU
RECEIVE AT EXIT=
Cumulative Coc ($) Equity upon Exit ($) Coc Return (%)
10%
8%
6%
4%
2%
0%
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Credit: Alexandria Luu
SELF-STORAGE
Annual returns for self-storage were 17.43% from 1993 to 2017,
making it the top producing asset class in commercial real estate.
14 Physician’s Deinitive Guide to Commercial Real Estate Syndications
This is because demand for self-storage is strong in both good times
and bad times.
Like multifamily, self-storage is considered commercial real
estate as these properties are typically >5 units. In the same man-
ner, this allows for leverage through economies of scale.
In contrast to multifamily, self-storage has unique attributes which
is why this asset class has produced strong returns for investors.
Top 3 distinguishing characteristics of self-storage that pro-
vide opportunities for value-add:
1. Majority of self-storage remains owned by small “mom
and pop” operators. Industry ownership is fragmented,
with 18% of facilities owned by the six largest public com-
panies, 9% owned by the next top 100 operators (minus
the REITs), and 73% owned by small operators. (Self-
Storage Almanac, 2019)
2. Dynamic month-to-month pricing
3. “Sticky factor” of renters
We review these characteristics below to see the opportunities
that self-storage provides to investors.
Top 5 reasons you should consider self-storage in your port-
folio:
1. Increased Demand
As mentioned above, population growth and U.S. con-
sumerism have driven demand for self-storage. The
business concept is fairly straightforward and simple to
15COMMERCIAL REAL ESTATE
understand: people need a place to store their stuff, either
permanently or temporarily.
The demand is met largely by residential tenants (~70%),
whether it be baby boomers downsizing or millennials
seeking storage as they are delaying home ownership
and renting longer. Other groups include: commercial/
small businesses, students, or military.
2. Low Turnover
Contrary to what one may think, self-storage lease terms
have actually averaged 12-25 months, providing stable
returns to investors. Estimates are that one third of users
have stored their stuff in one of these units for more than
three years.
Self-storage leases are often month-to month as opposed
to a year (in apartments), so there is a potential for
higher turnovers. However, this can actually be to the
investors’ advantage as most tenants would not choose
to go through the hassle and inconvenience of moving
to another facility if the rent increased from $50 to $60
per month (increasing income by 20%!).
3. Low Overhead Expenses and
Breakeven Occupancy
Self-storage facilities are much less expensive to build,
manage, and operate when compared to other commercial
assets like multifamily, retail, and office buildings. That’s
because there are no tenants living there, no amenities to
maintain or clean, and these facilities require much fewer
personnel to staff.
16 Physician’s Deinitive Guide to Commercial Real Estate Syndications
Lower expenses and overhead mean that the asset can
break even with lower occupancy (decreasing risk to
investors). On average, the breakeven occupancy for
self-storage facilities is around 40 to 45 percent.
4. Asset Class Returns
According to the National Association of REIT, the self-
storage sector produced an average annual return of
17.43% from 1994 to 2017. For comparison, here are the
returns from some other REIT sectors during that same
time:
Office: 13.26%
Retail: 12.75%
Industrial 13.36%
Residential: 13.42%
Apartments: 13.32%
Manufactured Homes: 13.27%
Mortgage: 11.18%
S&P 500: 7.54%
(Source: https://www.reit.com/data-research/reit-indexes/annual-index-values-returns)
5. Recession Resistant
According to the NAREIT, the self-storage asset class also
outperformed other sectors in the most recent reces-
sion. From 2007-2009 the self-storage sector produced an
average of -3.80%. For comparison, here are the returns
from some other REIT sectors over that same time:
Office: -8.16%
Retail: -12.32%
Industrial: -18.31%
17COMMERCIAL REAL ESTATE
Residential: -6.43%
Apartments: 6.72%
Manufactured Homes: 0.47%
Healthcare: 4.92%
Mortgage: -19.54%
S&P 500: -22.03%
Why was self-storage able to outperform almost every REIT
sector during the most recent recession? When the economy is
good and disposable income is on the rise people buy more “stuff”
and need a place to store it. It makes sense.
You can learn more about self-storage investing by
referring to our blog: Self-Storage Investing 101
MANUFACTURED HOME PARKS (MHP) OR MANUFACTURED HOME COMMUNITIES (MHC)
The affordable housing shortage in the U.S., combined with the
highly fragmented state of the manufactured housing community
industry presents a unique opportunity to provide affordable, qual-
ity housing in great communities and deliver strong, consistent
cash flow to investors.
The opportunity is a result of three core conditions, all of which
are predicted to persist into the foreseeable future:
1. Demographic trends
Average home prices and rents have consistently risen at
a dramatic pace since 1980, while income for the lowest
18 Physician’s Deinitive Guide to Commercial Real Estate Syndications
40% of earners in the U.S. has remained essentially
flat, creating the current affordable housing shortage.
Additionally, an estimated 3.6M baby boomers are retir-
ing annually with roughly half of them having less than
$10,000 in savings.
2. MHP Economics
Since most manufactured homes are owned by tenants
while the land is rented, MHPs tend to be a low-cost busi-
ness. Revenue is steady and can be escalated consistently
due to the fact that moving a manufactured home to a
different park is cost prohibitive for the vast majority of
tenants.
3. Industry Fragmentation
With the 100 largest MHP owners controlling only 44%
of the market, most of the players in the industry are
mom-and-pop operators that tend to either run ineffi-
cient parks or neglect them entirely.
You can learn more about manufactured home parks by
referring to our blog: Manufactured Home Parks 101
C H A P T E R T W O
SYNDICATIONS
“Real estate investing, even on a small scale,
remains a tried and true means of building an
individual’s cash flow and wealth.”
—Robert Kiyosaki
WHAT IS A SYNDICATION?
Syndication is simply a way for people to pool their resources
together. The syndication structure allows individuals to pool their
resources together to purchase an asset. Real estate is a team sport,
and by combining each individual’s knowledge, experience, time,
and capital, everyone is contributing to the project and sharing in
the risks as well as the returns. Without pooling resources together,
it would otherwise be impossible to complete the transaction on an
individual basis.
20 Physician’s Deinitive Guide to Commercial Real Estate Syndications
Read below on the benefits of investing through syndications
based on insights from members of the Physician Investors Circle:
“Working full-time (which for me is 60+hrs/week) and family
obligations made real estate syndications more attractive to us than
finding and managing income-producing single family rentals out-
side of our region.”
—K.W., M.D. Anesthesiology
“I already have investments in stocks and bonds and wished to
diversify in real estate. However, I work full-time clinically and was
looking for passive income streams. Single family rentals did not
appeal to me since they can be high maintenance and not necessar-
ily profitable.”
—M.S., M.D. Anesthesiology
“I am a busy clinician with kids at home and the last thing I wanted
was another job to take time away from my family. Commercial real
estate is daunting in that there are big players who do this every-
day, and I couldn’t compete with them by going at it alone. So, pas-
sive syndication was a great option to avoid an increased workload
while leveraging the experience of proven teams.”
—A.B., M.D. Orthopedic Surgery
In the next section, we cover some of the factors for you to
consider as an investor exploring investing in real estate through
syndications.
21SyNDICATIONS
Read our featured articles: “Real Estate Syndication 101: A
Physician’s Guide” on KevinMD and “A Physician’s Guide
to Real Estate Syndications” on Doximity
WHY INVEST WITH A SYNDICATION?
Each of us has limited time, resources, knowledge and experience.
As physicians, the majority of our time, along with our resources,
have been devoted to our medical education and clinical practice.
Real estate syndications can be an attractive investment vehicle
for busy professionals who do not have the time or experience to
actively manage real estate. As an investor in a syndication, you can
put your capital to work for you. As a limited partner, you are an
equity owner which allows you to leverage the benefits of investing
in real estate for passive income independent of your time.
So, what does this mean for you as an investor interested in
real estate? Like many, I thought the only way to get involved was
to invest into a rental property. While rentals can do well, I real-
ized early on that I didn’t want to actively manage properties or be
responsible for tenants, toilets, trash, and termites!
There are benefits and risks to both active versus passive invest-
ing. We discuss each briefly below to highlight the main differences,
and encourage you to explore these as well to see which is a better
fit for your investment philosophy.
1. Time
Active: You are responsible for finding, evaluating,
acquiring and managing the property.
22 Physician’s Deinitive Guide to Commercial Real Estate Syndications
Passive: The sponsor (general partner), rather than you
(limited partner), is responsible for evaluating, acquiring
and managing the property.
2. Knowledge
Active: You are responsible and need to spend time
gaining knowledge of the market, neighborhood and
property, as well as the systems and processes required to
manage a property.
Passive: The sponsor is responsible for doing the market
research and to be up to date on the local real estate news
and trends in helping evaluate, acquire and manage the
property.
3. Capital
Active: You are responsible to obtain funding and to
make sure there are ample reserves for repairs, mainte-
nance and operations of the property. You sign the loan.
Passive: Your capital is limited to the equity you invest
into the project. You do not sign on the loan and do not
bear the burden should the property not perform.
4. Risk
Active: You are the sole responsible party as you are sign-
ing the loan. With single family rentals, you do not have
the economies of scale that commercial real estate offers.
Occupancy is 100% or 0%.
Passive: The sponsor is responsible for finding funding
and signing on the loan. There is less risk with economies
of scale of several units.
23SyNDICATIONS
In summary, syndications allow for busy professionals like your-
self to invest capital and put your hard-earned money to work
independent of your time or effort. It is an ideal vehicle that allows
investors to take advantage of the benefits of real estate investing
through leverage.
Check out our featured podcasts to learn more:
Hippocratic Hustle: Investing in Real Estate Syndication with Cherry Chen, M.D.
Doctors Unbound: Mentors, Meetups, and Mutli-Family Syndications with The Real Estate PhysicianTM
Physician’s Guide to Doctoring: The Real Estate PhysicianTM
with Cherry Chen, M.D.
HOW TO INVEST IN A COMMERCIAL REAL ESTATE SYNDICATION
FAQs
1. What is a real estate syndication?
A syndication is simply a way for people to pool their
resources together. A real estate syndication allows for
individuals or groups to pool their financial and intel-
lectual resources together to purchase properties much
bigger than they could afford or manage on their own. By
24 Physician’s Deinitive Guide to Commercial Real Estate Syndications
combining each individual’s knowledge, experience, time,
and capital, everyone is contributing to the project and
sharing in the risks as well as the returns. Without pool-
ing resources together, it would otherwise be impossible
to complete the transaction on an individual basis.
2. How do I know who to invest with?
There is no perfect investment, and ultimately, every
individual needs to assess the investment opportunity
based on their own risk profile. We believe in the impor-
tance of being knowledgeable and finding investments
that align with your personal investment philosophy.
As part of The Real Estate PhysicianTM network, mem-
bers of the Physician Investors Circle will have access to
resources and vetted opportunities.
3. What are the risks?
There are risks associated with any type of investment. In
regards to commercial real estate syndications, the inves-
tor should review the investment opportunity with regards
to the deal, the market and the sponsor team. The private
placement memorandum (PPM) that an investor signs in
order to subscribe to the investment will outline in detail all
the risks associated with the investment. The greatest risk
as an investor is losing your invested capital into a project.
4. What are the returns?
Every investment opportunity is unique, but typical
investor returns have ranged from 7-10% annualized
return with 1.7-2X on their equity investment and IRR
13-20%. Additional returns upon refinance or sale of
the asset vary widely. Generally, investors will receive
25SyNDICATIONS
distributions on either a monthly or quarterly basis,
depending on the sponsor.
5. What are the most common mistakes new investors make?
One mistake is to not develop a personal investment phi-
losophy and plan. The investor should be aware of their
personal financial situation and needs before they commit
to the investment. Another mistake is not being educated
about a deal prior to jumping in. One of the main objec-
tives with the Physician Investors Circle is to help save
time and effort by leveraging our knowledge and expe-
rience to provide our members with opportunities by
experienced sponsors with proven track records.
6. How do I get started investing?
Many deals require you to be an accredited investor, but
there are also deals that accept non-accredited investors.
If you are interested in investing, simply sign-up with the
Physician Investors Circle to connect with us.
7. Am I an accredited investor?
An accredited investor, as defined by the Securities and
Exchange Commission (SEC), must satisfy at least one of
the following:
• Have an individual annual income of $200,000, or
$300,000 for joint income, for each of the last two
years, with expectations of earning the same or
higher income this year;
• Have a net worth exceeding $1 million, not count-
ing your primary home
There is no certification or accreditation process to
26 Physician’s Deinitive Guide to Commercial Real Estate Syndications
become accredited. Investors are considered accredited
or non-accredited by meeting the definition(s) above.
8. How much money do I need to invest?
The typical minimum investment amount is $50,000,
though each syndication is unique. Typical minimum
investment amounts range from $25,000 - $100,000.
Investors may invest as an individual with a checking or
savings account, or with an entity such as a LLC, trust, or
Self-directed 401K or IRA account.
9. How often do opportunities come up for investors to
review and invest?
This is dependent on whether there is an invest-
ment opportunity we have vetted that fits our criteria.
Typically, about 1-2 offerings each quarter. We take great
responsibility in building the right relationships and vet-
ting sponsors and opportunities for our community.
10. What are your criteria?
Each investment opportunity is unique, but the major-
ity will focus on “value-add” opportunities. Typically, the
properties are comprised of stabilized Class B/C proper-
ties which can provide investors with stable cash-flow
upon acquisition, along with opportunities to add value to
the property to force appreciation and provide investors
with capital gain profits upon sale.
Our first priority is capital preservation and, secondly,
capital appreciation. Generally, investors will receive
40% of projected returns from the cash flow distribu-
tions and 60% from the sale of the property.
*Refer to our Sample Deal (p. 13) for a general example.
27SyNDICATIONS
11. How do you vet a sponsor?
Investors will often first look to the investment returns,
but the most important component of any syndication is,
inarguably, the sponsor(s) who are leading the deal. Since
you are investing as a limited partner, you will have no
control, so vetting the sponsor is a critical step as you will
be entrusting them with your investment. We discuss this
in detail on our blog, Vetting a Sponsor, and in the “Vetting
a Sponsor” section of this guide on page 41.
12. Do I need to be a physician to invest with The Real
Estate PhysicianTM?
You do NOT need to be a physician to invest with The
Real Estate PhysicianTM. Sign-up with our Physician
Investors Circle to learn more. We have investors in all
areas of healthcare, including pharmacists, dentists, as
well as non-medical professionals.
13. Can you explain The Real Estate PhysicianTM role?
Think of us as your investor liaison. We have a relation-
ship with you and connect you with the sponsorship
teams that we have personally vetted and built relation-
ships with. This follows SEC rules and regulations as
private equity offerings can only be shared with those in
your network whom you have a relationship with. As
your investor liaison, we provide you with education and
communication regarding the investment opportunity.
We will update you on the investment and serve as your
point of contact for any information or questions about
the investment.
28 Physician’s Deinitive Guide to Commercial Real Estate Syndications
14. How are syndications different from REITs or
crowdfunding?
While these are all options for passive investors in com-
mercial real estate investments, it is important to note
the differences so you can be knowledgeable about your
options.
Some of the main differences to consider include: mini-
mum investment amount, ownership, liquidity, taxes,
fees and access to the sponsor. Depending on the syndi-
cation sponsor, some offerings will only accept accred-
ited investors.
REIT CROWDFUNDING SYNDICATION
MINIMUM
INVESTMENT
No minimumVaries,
$500-$5000Average $50K
LIQUIDITY Liquid Illiquid Illiquid
OWNERSHIP
OF ASSET
No yes yes
TAXES
Dividends taxed
as ordinary
income; Investors
receive 1099
Annual
distributions
based on equity
% can be tax
free (due to
depreciation);
Profits on sale
taxed as capital
gains. Investors
receive K-1.
Annual
distributions based
on equity % can
be tax free (due
to depreciation);
Profits on sale
taxed as capital
gains. Investors
receive K-1.
29SyNDICATIONS
FEES
Annual servicing
fee, annual
management fee
Varies depending
on platform.
Often includes
annual servicing
fee and annual
management fee.
There is typically
a one-time
acquisition fee
upon closing and
recurring asset mgt
fee for the holding
period of the asset.
Investor returns are
NET fees.
ACCESS TO
SPONSOR
No No yes
Source: The Real Estate PhysicianTM
15. What are the fees?
Membership in the Physician Investors Circle with The
Real Estate PhysicianTM is free for those who sign up,
consistent with our Vision, Mission, and Values. We are
able to provide this service by partnering with the general
sponsors whom we have vetted and are investing along-
side with our investors.
Fees for each specific investment are disclosed in the
investment offering and outlined in the private place-
ment memorandum (the legal document) that is provided
to investors for review. There are industry averages, but
fees vary with each sponsor and each deal. Typically, fees
range from 1-3% and include: acquisition fee, asset man-
agement fee, and refinance or disposition fee. It is impor-
tant to note that investor returns are NET fees.
30 Physician’s Deinitive Guide to Commercial Real Estate Syndications
16. Will I be liable if a tenant sues the property?
The properties are typically purchased and owned by
an LLC, and as a passive investor, you are not liable as a
limited partner.
17. Can I sell my shares if I need the capital?
The capital you place into the investment should be
considered illiquid over the timeline of the project. Each
sponsor group may be able to consider your situation on
a case-by-case basis if you needed to liquidate your shares,
but the default is that the capital you invest should be
considered illiquid.
18. What is the difference between a 506(b) or a 506(c)
offering?
A 506(b) offering cannot be advertised and has the option
to take both accredited and up to 35 non-accredited
investors whom the sponsor has a pre-existing relation-
ship with. A 506(c) offering can be advertised, but can
only take accredited investors. This is pre-determined by
the sponsor group in advance based off their preferences.
From an investor standpoint, you are able to self-attest
your accredited status in a 506(b) offering; whereas in a
506(c) offering, investors need to go through a third party
to verify their accredited status.
The syndication process
In this section, we cover the main parts of the syndication process
investors should understand when making an investment. As mem-
bers of the Physician Investors Circle, we will guide you through
the whole process so you are knowledgeable and feel comfortable
about your investment.
31SyNDICATIONS
As an investor, you will be receiving the following three docu-
ments to complete when you subscribe to an offering:
1. Investor Questionnaire
• The purpose of the investor questionnaire is for
the sponsors to determine if the investor is suitable
for the investment. It is also commonly referred to
as the Investor Suitability Questionnaire.
• The questionnaire will usually include information
such as your education, profession, and accred-
ited or non-accredited status. For non-accredited
individuals, the sponsors want to make sure you
are sophisticated enough in terms of being an
informed and educated investor.
2. Private Placement Memorandum (PPM)
• PPM stands for private placement memorandum. It
is also commonly referred to as an offering memo-
randum or offering document. The PPM is a legal
document that is provided to potential investors
when they are considering investing in a private
placement.
• The purpose of the PPM is to provide comprehen-
sive and transparent information to prospective
investors so that they are fully informed about the
investment they are subscribing to.
• A typical PPM will include general and spe-
cific summaries of the offering, industry, asset,
management team, financials, instructions and
32 Physician’s Deinitive Guide to Commercial Real Estate Syndications
supplemental information so the investor under-
stands the risks and benefits of the investment and
how to invest in the offering.
3. Subscription Agreement
• The subscription agreement is usually included
as part of the PPM and is a two-way agreement
between the investor and the company (LLC pur-
chasing the property).
• When you sign the subscription agreement as an
investor, you are applying to join as a limited part-
ner in the company purchasing the property. It is
an agreement in which the company agrees to sell
a certain number of shares at a specific price to the
investor (subscriber) at a predetermined price.
• As a limited partner, investors do not participate
or vote in business operations. You do not actively
participate in running the business and are truly
just a passive investor.
33SyNDICATIONS
PRIVATE PLACEMENT MEMORANDUM
What is it? Why is it important?A private placement memorandum (PPM) is a
legal document used by the sponsorship team
when raising private money from individuals. It
can also be referred to as the confidential
offering memorandum. The major components
of a PPM are outlined below.
As prospective investors, you should be informed
on the aspects of the investment. The PPM’s
purpose is to disclose the facts and objective
information about the company and the offering
so you can make an informed decision.
This is an overview of the company’s business and business plan which provides
a condensed summary of the business and the investment opportunity.
EX
EC
UT
IVE
SU
MM
AR
Y
This section includes the disclosure of general and specific risk factors investors
should consider when evaluating the investment. Examples include risks related to
the company, industry, and the securities being offered.
RIS
K
FA
CT
OR
S
This section provides investors with information about the company, its management
team, and the industry which it operates in. Information such as the company’s
history, performance history, organizational structure, biographical and background
information of the management team will be disclosed here for investors to review.CO
MPA
NY
OV
ER
VIE
W
The subscription procedures provides investors with instructions on how to invest
or “subscribe” to the offering. The subscription agreement is signed by the company
and investor and acts as the contract.
SU
BS
CR
IPT
ION
PR
OC
ED
UR
ES
&
AG
RE
EM
EN
T
This section discloses how the company will intend to use the capital raised from the
investors. It will provide detailed information on how the capital will be utilized. This
allows investors to know how their investment will be used.US
E O
F
PR
OC
EE
DS
This section includes a description of the offering terms. Information should
include: description of the security, price, minimum investment, investor
qualification standards, and discussion of the company’s operating and limited
partnership agreements.
TE
RM
S O
F
OF
FE
RIN
G &
SE
CU
RIT
IES
This section provides investors with supplemental information not already included
that may be helpful to investors when evaluating the offering. It can include
information such as financial statements, contracts, licenses, etc.EX
HIB
ITS
Credit: Alexandria Luu
34 Physician’s Deinitive Guide to Commercial Real Estate Syndications
The following timeline is generally how a syndication process
looks:
DEAL TIMELINE
1) SIGN UP
3) INVEST
2) CONNECT
DEAL CLOSES
K-1 TAX FORM
5-7 YEARS
2-4 WEEKS
You will receive a Schedule K-1 form
annually to file with your taxes.
Usually about 2-4 weeks after the funding
is complete, the deal is closed and deal
sponsors will start implementing the
business plan.
You will receive documentation, also known
as the Private Placement Memorandum to
complete, or in other words “subscribe”, to
the offering.
This will include directions on how to submit
your funds to finalize your submission.
After completing our Investor’s
Questionnaire, you will receive
investment opportunities in your
inbox to review.
Sign up on our website to join the Physician
Investors Circle to learn about commercial
real estate syndication investments.
Every deal is unique, you will receive
monthly or quarterly distributions
typically starting 6 months after closing.
Sit back, relax, and let your
money work hard for you.
When you are ready, reserve your spot in
the deal by submitting a “soft reserve” with
the amount you’d like to invest. Spots are
available on first-come, first-serve basis.
We will connect with you to learn about
your investment philosophy and goals.
The exit strategy and timeline is unique to each deal.
The average holding period is 5 to 7 years.
You will receive annual cash flow + sales
proceeds upon sale or refinance of the property.
6 MONTHS
EXIT
DISTRIBUTIONS
SOFT RESERVE
PRIVATE PLACEMENT MEMORANDUM (PPM)
4) RELAX
Credit: Alexandria Luu
C H A P T E R T H R E E
GETTING STARTED:
THE ANATOMY
OF A DEAL
“Acknowledging what you don’t know is
the dawning of wisdom.”
—Charlie Munger
COMMERCIAL REAL ESTATE VOCABULARY
Common terminology
One of the main obstacles investors face when evaluating commer-
cial real estate syndication offerings is the jargon! Understandably,
physicians have little bandwidth to study after a busy day in practice,
36 Physician’s Deinitive Guide to Commercial Real Estate Syndications
but are trained to be logical and risk averse in nature. This com-
bination results in investors falling on two sides of the spectrum,
either feeling completely overwhelmed, or succumbing to analysis
paralysis. Both result in inaction, and it is our goal that you have the
confidence to take action after reading through this guide.
In this section, we will cover the basic terminology investors
should understand that provide a foundation upon which you can
build. This pales in comparison to the medical jargon and “drink-
ing from a fire hydrant” experience we had as first year medical
students!
The terms below are by no means a comprehensive list.
Understanding these terms will allow you to evaluate investment
opportunities and, more importantly, to learn the language so you
can ask the right questions.
Cash on cash return (CoC):
• A rate of return, often used in real estate transactions,
that determines the cash income on, or in proportion
to, the cash invested.
• Calculation: (CoC) = (Annual Cash Flow) / (Total
Equity Invested)
• Example: Assume you invest $100K into an apartment
syndication deal and realize a return of $8K annually,
then the CoC is (8,000) / (100,000) = .08, or 8%.
Cashflow:
• Cash generated from the operations of a company.
37GettinG Started: the anatomy of a deal
• Calculation: (Cash Flow) = (Revenue) – (All Operating
Expenses)
• Example: Assume the apartment has an annual rev-
enue of $100,000. Now, assume you have operating
expenses of $50,000 (debt service, insurance, capi-
tal expenditures, vacancies, etc.). The cash flow is
($100,000) – ($50,000) = $50,000/yr. or $4166.67/mo.
• The distributions to investors come from the cashflow
of the property. There are two notable benefits of this
as investors:
• Cashflow distribution = passive income to inves-
tors throughout the year.
• The depreciation of the asset is often higher than
the cash distributed to investors = tax-free income
from the distributions.
• This is what makes commercial real estate a
very attractive way to invest. Passive income
on a predictable schedule that is tax-free.
Investors do not receive these benefits when
investing in stocks or REITs.
Capitalization rate (CAP):
• A rate of return on a real estate investment property
based on the expected income that the property will gen-
erate. It is used to estimate the investor’s potential return
on their investment.
• Calculation: (CAP) = (NOI) / (Total Asset Value)
38 Physician’s Deinitive Guide to Commercial Real Estate Syndications
• Example: Assume we buy an apartment for $1M and
the net operating income (NOI) is $60K, then the CAP
is (60,000) / (1,000,000) = .06, or 6%.
• A higher CAP implies a lower price, and vice versa. In
general, when acquiring, a higher CAP is better, and
when selling, a lower CAP is better.
Equity Multiple (EM):
• The total cash distributions received from an
investment.
• Calculation: (EM) = (Total cash distributions) / (Total
Equity Invested)
• Example: Assume you invest $100K into an apartment
syndication for 5 years. Each year, you receive $8,000
annually along with $160K ($100K equity returned +
$60K capital gain) upon sale of the property at year 5.
EM = $40K + $160K / $100K = 2.0
Preferred return (Pref):
• A first claim on profits until a target return has been
achieved. This helps minimize risk to investors and
thus makes the investment more attractive.
• Example: Assume an individual invests $100K in
an apartment syndication deal with an 8% pref, this
means that the investor will receive $8K cash flow
annually before the general partner receives any pay-
out (assuming sufficient cash flow).
39GettinG Started: the anatomy of a deal
• This does not mean investors are guaranteed or
capped at the 8%. The “preferred” simply means that
investors are paid first up to the specified % before the
sponsor gets to share in the profit. This is one way
sponsors show alignment of interest with investors.
Internal rate of return (IRR):
• Defined as the rate of return that would make the
present value of future cash flows plus the final market
value of an investment opportunity equal the current
market price of the investment or opportunity. The
higher a project’s internal rate of return, the more
desirable it is to undertake the project.
• To put it another way, it is the discount rate at which
the net present value (NPV) of a set of cash flows
equals zero. Simply put, it is the rate at which a real
estate investment grows or shrinks.
• Another way to think of IRR is as a time sensitive
compounded annual rate of return; the investment
grows/shrinks by X% per year, evenly, over the life of
the investment.
Average annual return (AAR):
• The average return per year during the investment
holding period.
• Can be calculated as AAR (excluding disposition) or
AAR (including disposition), which would include the
return of investment capital as well.
40 Physician’s Deinitive Guide to Commercial Real Estate Syndications
Debt service coverage ratio (DSCR):
• It is the multiples of cash flow available to meet annual
interest and principal payments on debt. This ratio
should ideally be over 1. That would mean the property
is generating enough income to pay its debt obligations.
• A bank will typically want to see a DSCR of at least
1.2x here, as anything under 1.0x would imply that
there is not enough cash flow to cover debt service.
• The DSCR is a marker of how leveraged the asset is.
Be cautious of low DSCR as this could imply that the
asset is overleveraged (too much debt).
The sample offering below puts the numbers and terms in con-
text so you can see how it applies when evaluating an offering.
41GettinG Started: the anatomy of a deal
SAMPLE DEAL
RUSTIC OAK APARTMENTS
110 UNITS | DALLAS, TX
Introducing Rustic Oak Apartments located in Dallas, TX. This 110 unit property is sponsored by Coffee&Do-nuts with a projected annualized cash-on-cash return of 9.14% with a 1.97X equity multiplier over a 5 year holding period. The minimum investment amount for this deal is $100,000.
This is based on a deal that has already closed and only intended to be used as an example.
LET ’S SAY YOU RECEIVE
THIS DEAL IN YOUR INBOX
Cash on Cash Return ($)
Cash on Cash Return (%)
$5,992
6.0%
$8,758
8.7%
$9,574
9.6%
$10,310
10.3%
$11,070
11.1%
-
0.0%
-
0.0%
-
0.0%
-
0.0%
$51,336
51.3%
$5,992
6.0%
$14,710
14.7%
$24,283
24.3%
$34,593
34.6%
$97,000
97.0%
Equity upon Exit ($)
Equity upon Exit (%)
Total Cumulative Return ($)
Total Cumulative Return (%)
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
TOTAL5-YEAR
RETURN YOU
DECIDE
D TO
INVEST
THIS MU
CH Projected Investor Returns
$97,000$100,000
$197,000
INITIAL INVESTMENT + TOTAL RETURNS
HOW MUCH YOU
RECEIVE AT EXIT=
Cumulative Coc ($) Equity upon Exit ($) Coc Return (%)
10%
8%
6%
4%
2%
0%
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$-
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Credit: Alexandria Luu
VETTING A SPONSOR
One of the most common questions for investors looking into syn-
dications is, “How do I know if I can trust the sponsor?” Investors
will often first look to the investment returns, but the most impor-
tant component of any syndication is, inarguably, the sponsor(s)
who are leading the deal.
Syndications allow you to be a passive investor in which your
capital is put to work. It is an attractive way to invest without the
need to be active in the daily operations and management. This
allows you to save time and effort and is an advantageous way to
leverage your portfolio as a busy professional.
42 Physician’s Deinitive Guide to Commercial Real Estate Syndications
Since you are investing as a limited partner, you will have no con-
trol, so vetting the sponsor is a critical step as you will be entrusting
them with your investment. One of the advantages of a syndication
structure is that you have direct access to them as limited partners.
In this section, we cover the key components to include when
vetting a sponsor.
1. Background
• Investors can find out general information from
the sponsors’ website, which will often include
their investment philosophy, acquisition criteria,
and portfolio of prior projects. Often, their con-
tact information is available and you can reach out
to speak to them directly if you are interested in
becoming an investor. Remember, just as you are
doing due diligence on the sponsor, they also need
to do their due diligence to get to know you since
syndications are often 5-7 year commitments.
• There are several podcasts out there to help you
learn more about the sponsor indirectly, as well
as multiple real estate conferences for sponsors
and investors to meet directly in person. Local
real estate meet-ups are another avenue to meet
sponsors.
2. Experience or Track Record
• If you are going to be investing $50K into a syn-
dication, it is important to know that your invest-
ment is in good hands. One way to build your
43GettinG Started: the anatomy of a deal
trust is to find out what experience the sponsor
has. How many deals have they closed? How many
deals have they exited? You can also find out the
specifics of each deal they have done by reviewing
their portfolio. This information is often included
in the investment offering as well.
• Specifically, does the sponsor have experience with
the same type of asset or in the same market that
the investment you’re considering is in? If not, what
steps have they taken to mitigate any risk of enter-
ing a new market, or what research have they done
to suggest that this is a good market to enter into?
3. Team Members
• Lead Sponsor
• Other members: often, there are other members
of the sponsorship team excluding the lead spon-
sor. As you can imagine, there are many steps,
tasks and responsibilities included in acquiring and
managing a property, so you will likely see other
team members as part of the General Partnership.
As an investor, you should understand who they
are and what their roles and responsibilities will be
in the deal.
• Property management team: this is often over-
looked by investors, but is critical to the success
of the deal. The property management team is the
boots on the ground and involved in the everyday
operations of the property. Everything they do
44 Physician’s Deinitive Guide to Commercial Real Estate Syndications
has a direct link to the income or expenses of a
property and your returns as an investor. A good
sponsor understands this and will have done a
thorough job selecting this team.
4. Alignment with Investors
• Fee structure: each sponsor will have different
fee structures which will be outlined in the inves-
tor subscription documents or private placement
memorandum. As an investor, look for structures
that show the sponsors’ interests are aligned with
the investors. We discussed this in more detail in
our blog, Nuts and Bolts of a Syndication.
• Skin in the game: it is important to know if the
sponsor has “skin in the game” so to speak. Most
times, this refers to how much capital they are
putting into the deal themselves. While not
required, it is comforting to know that they are
putting their own capital into the deal along with
their investors.
5. Professionalism
• Communication: while we all hope for a smooth
investment, no one can predict with 100% cer-
tainty if there will be unforeseen circumstances
that may arise through the lifetime of the invest-
ment. Good sponsors will provide timely, con-
sistent, and transparent communication to their
investors. This is often done on a monthly or
quarterly basis.
45GettinG Started: the anatomy of a deal
• Access: syndications are often 5-7 year commit-
ments, so it is important to know going in that
you will have access to the sponsor if you have any
questions or concerns about your investment. This
is one of the advantages of investing in a syndica-
tion that you do not get when investing in a stock
market or REIT.
6. Investor References
• You can ask for prior investors’ contact informa-
tion and speak to them about their experiences
with the sponsor.
7. Sponsor Fees
• This will be outlined in the private placement
memorandum that is provided to investors for
review. Often includes: acquisition fee, asset man-
agement fee, disposition fee. There are industry
averages, but the sponsor fees vary with each
sponsor and each deal.
8. Sponsor Roles
• This will also be outlined in the private placement
memorandum detailing the roles and responsibili-
ties of the sponsor in the project.
We have outlined the main considerations when vetting a spon-
sor. It is important to understand whom you are entrusting your
capital to so you feel comfortable about your investment.
46 Physician’s Deinitive Guide to Commercial Real Estate Syndications
VETTING A MARKET
Real estate, like any other market or business, depends on supply
and demand. While many real estate investors may feel more com-
fortable investing locally in their city, it may not always be the best
decision from an investment standpoint.
Generally speaking, we like to see the following characteristics
in the markets we invest in. When the markets meet these crite-
ria, we are able to minimize risk and provide the best opportunity
for success.
POPULATION GROWTH 20%
MEDIAN HOUSEHOLD INCOME 30%
MEDIAN HOME PRICE 40%
CRIME INDEX <500
JOB GROWTH >1%
Investors can find this information on www.city-data.com and
https://www.deptofnumbers.com/employment/metros/
*Percentages above are based on 2010-2017 at time of this publication.
Source: Neal Bawa (MultifamilyU)
It can be time consuming and, to be honest, as busy profession-
als we often do not have the time to stay atop these market trends.
When we invest through syndications, we can leverage industry
knowledge and the experience of sponsorship teams. As passive
investors, syndications allow us to diversify out of our local markets
and “invest where it makes sense.”
47GettinG Started: the anatomy of a deal
VETTING A DEAL
One of the most common questions we get from investors is, “How
do I know if it’s a good deal?” Notice that the deal specifics are dis-
cussed only after we have vetted the sponsor and the market. The
deal specifics are important, but remember that the property is part
of a neighborhood and a city, and that the sponsor is responsible for
executing on the business plan . . .
I often hear that a great deal can go bad and a bad deal can turn
out great . . .depending on the sponsor. Think about it from the
perspective of a physician taking care of a patient; a cholecystec-
tomy may be a simple procedure, but the patient needs to trust the
surgeon and the healthcare team around them first before asking
about the specifics of the procedure, not the other way around.
Once you trust the sponsor and have a good understanding of the
market, then you can review the specifics of a deal and see if it is a
good fit. Typically, the sponsor will present and provide details about
the deal in an “Investment Offering” which includes information
about the sponsor, the market, and the deal. This is where you can
do your own due diligence as an investor and, more importantly, ask
questions similar to a consultation between a physician and a patient.
The specific details regarding the asset you’re investing in can be
found in the “proforma,” which goes into detail about the financials
of the property, as well as the sponsor’s projections and business
plan for the property.
The goal of this guide is to provide you with a basic founda-
tion as we can’t possibly cover all the details here when evaluating a
deal. In general, the proforma will start with a T3 or T12, which is
the trailing 3 or 12 months of income and expenses on the specific
property. The sponsor then makes projections based off of certain
assumptions in formulating the business plan and the projections
for returns to investors.
48 Physician’s Deinitive Guide to Commercial Real Estate Syndications
The key points to note as an investor when reviewing the pro-
forma are:
• You can verify the numbers: sponsors perform due dili-
gence on the property financials by obtaining the rent
roll, income, expenses, taxes on the property. These are
objective facts and numbers which can be verified.
• The business plan is based off of projections moving
forward based off of certain assumptions. No one can
predict the future or plan for unforeseen events, but
investment risk can be mitigated by being conserva-
tive with projections.
Questions to consider asking when reviewing the proforma:
• How conservative or aggressive are the sponsor’s
projections?
• Can they explain to you why or how they derived
these assumptions?
• How does the sponsor plan on executing on the
proforma?
• How will investor returns be affected if the property
performs better or worse than the projections? This
is referred to as the sensitivity analysis in which the
sponsors perform to see how the investment will hold
up based off variations in key metrics, including occu-
pancy, revenue, and CAP rate.
We understand that it can be overwhelming when first review-
ing these numbers, so feel free to reach out to us. We’d be happy to
walk and guide you through a deal analysis.
C H A P T E R F O U R
NEXT STEPS
“You don’t need to have it all figured to move forward
...just take the next step.”
—Anonymous
If you are interested in learning more, visit www.therealestatephy-
sician.com to connect with us! You can sign up for the Physician
Investors Circle and join a growing community of like-minded
physician investors. Our goal is to empower you as an investor so
you are knowledgeable and confident about commercial real estate
syndication opportunities. You can review member highlights and
experiences with investing on our Blog, or simply schedule a call to
find out more.
Here are some experiences shared from our current members
with The Real Estate PhysicianTM:
50 Physician’s Deinitive Guide to Commercial Real Estate Syndications
“The Real Estate PhysicianTM provides much more than a con-
nection to the commercial real estate world. Having started my
education with books and podcasts on investment options in real
estate, I looked through everything from single family rentals to
crowd funded real estate but felt I didn’t have to tools to evaluate
the investments. The Real Estate PhysicianTM provided the material
to help improve my knowledge base. I now feel much more confi-
dent when a commercial real estate syndication opportunity arises.”
—A.B., D.O. Urology
“Prior to investing with The Real Estate PhysicianTM, I had no
previous experience with commercial real estate. I wanted to be
more of a passive investor, so I was following some of the deals on
crowdfunding platforms but never took the plunge in investing in
any of the deals. Having met Cherry personally a few years back and
hearing about her current investment philosophy, I felt more com-
fortable investing with a syndicator who has met with the sponsors
personally and deemed a good fit. This made me feel more comfort-
able in investing my capital in these syndications.”
–K.C., M.D. Emergency Medicine
51NExT STEPS
“I had some experience with this type of investment vehi-
cle as I started with crowdfunding and peer to peer lending in
2010 when these opportunities were first coming to market, but
my first commercial real estate syndication was with The Real
Estate PhysicianTM. I started to listen to podcasts on commercial
real estate investing and began to analyze financial statements
and offerings, but honestly, I was a little overwhelmed with the
amount of information out there. However, I knew that I wanted
real estate, and more specifically, commercial real estate to be part
of my portfolio. It was not until my interaction with The Real
Estate PhysicianTM that this goal became a reality.”
—J.S., M.D. Interventional Pain/PM&R
CONCLUSION
We have covered a lot of ground in this guide. While not
comprehensive, this guide provides the basic foundation of
knowledge to build upon as you explore commercial real estate syn-
dication opportunities.
This is the information I wished I had when starting out four
years ago, and my hope is that the summary provided for you in
this guide will save you time and energy. I’ve tried to distill and
synthesize the information as I believe in sharing and educating so
that you can make the most informed decision before you invest.
I would have never imagined myself creating The Real Estate
PhysicianTM, but really saw a need in this space where I could
provide value to my fellow physician colleagues. Our vision is to
empower a community of physician investors to achieve greater
financial independence so we can have the freedom to practice
medicine on our own terms. We do this through integrity, collabo-
ration, and accountability with the mission of simplifying commer-
cial real estate investing for our investors.
54 Physician’s Deinitive Guide to Commercial Real Estate Syndications
Whether you decide if commercial real estate investments are a
right fit for you or not, I hope you continue to explore the concept
of leveraging your money to buy you more time and begin the shift
away from trading your time for money.
We are all limited by time, so whether you are looking for earlier
retirement, fewer work hours, or more available time with loved
ones, greater financial independence can allow you to choose how
you want to spend your time. As Warren Buffet wisely states,
“Your goal is to make enough passive income so that it can
fund your desired lifestyle.”
Let’s make the highest and best use of our greatest asset so we can be
the best version of ourselves to our patients and our families.
To your financial freedom,
Cherry Chen, M.D.Founder
The Real Estate PhysicianTM
ABOUT THE AUTHOR
Dr. Cherry Chen received her
M.D. at Texas A&M College
of Medicine with honors and com-
pleted her training at Oregon Health
& Science University. She is a full-
time Internal Medicine Hospitalist.
She has experience with commer-
cial real estate syndications across
multifamily, self-storage, and manu-
factured home parks as a limited passive investor, as well as raising
private equity capital through The Real Estate Physician.
Dr. Chen founded The Real Estate Physician to empower her
physician colleagues in commercial real estate investments.
The Physician’s Deinitive Guide to Commercial Real Estate Syndications is a resource
guide created for the physician investor looking to learn more about commercial
real estate syndications.
Do you find yourself overwhelmed with all the information available and not
sure what to do next? Do you feel that you lack the experience or knowledge to
invest in real estate? How do you know whom to trust?
This book was written with you in mind, the physician investor who wants to
put your hard-earned money to work with confidence.
In this book, you’ll discover:
• The unique attributes of real estate and the advantages of investing
in commercial real estate
• The top 3 proven recession-resilient niches in commercial real estate
• How busy professionals can invest in commercial real estate through
syndications for passive income
• The ins-and-outs of syndications so you can invest with confidence
DR. CHERRY CHEN received her MD at Texas A&M
College of Medicine with honors and completed her training
at Oregon Health & Science University. She practices as a
full-time Internal Medicine Hospitalist.
Dr. Chen founded The Real Estate PhysicianTM to empower
her physician colleagues and has become the trusted resource
in commercial real estate investments for physicians.
THE REAL ESTATE PHYSICIAN TM
w w w . t h e r e a l e s t a t e p h y s i c i a n . c o m